FOCUS: Massive advertising explosion looming for mainland China - WTO, Internet among most significant influencers

China has become the world's second-largest economic market, according to the International Monetary Fund Association (IMF), which ranks world markets according to Purchasing Price Parity (PPP). IMF figures show that the US has PPP of 20.8 per cent; China in second place scored 12 per cent, while Japan took third place with 7.4 per cent. This provides China with a very solid foundation in terms of versatile business opportunities to attract major foreign investment, apart from those categories which will likely flood the market once the WTO agreement comes into being, such as telecommunications, banking, insurance, distribution and retail. Last year, total adex in China - where there are 64,000 ad agencies employing 587,000 staff - reached RMB 62.2 billion (US$7.5 billion), 15.7 per cent up over 1998. Spend on television was RMB 35.8 billion, representing growth of about 15 per cent over the previous year; while newspapers earned RMB 14.6 billion and magazines, RMB 600 million. Though more than one-third of the total media investment was spent in the three key cities Shanghai, Beijing, and Guangzhou, other markets (particularly the Western region, for which the central government has already announced a series of development plans) continue to offer invaluable opportunities. Since 1995, an increasing number of provincial TV stations have moved onto the satellite platform, thereby offering nationwide coverage and challenging CCTV's once-unique claim of being the only true national broadcaster. A number of provincial networks, such as Hunan Satellite, have clawed significant share of market and are building formidable reputations, while others, such as Star TV's Phoenix channel, have built solid audience bases in all key cities, translating into solid advertising revenue. According to the latest CSM rating reports, CCTV is forecast to suffer a continuous downward trend in the affluent coastal areas, such as Tianjin and Shanghai, where audience shares have dropped by more than 20 per cent. Nonetheless, CCTV's well-established position and its authoritative news programming are helping to protect its current share (about 25 per cent) of the total TV adex pie. Cable TV, meanwhile, is increasing its own claim over advertising revenue in China, by providing better programming with more popular dramas and variety shows, and increasing its coverage via networking. Shanghai Cable TV, which almost doubled its revenue in the last year, plans to pioneer networking with Suzhou Cable and Changzhou Cable TV (both are neighbourhood cable networks) to expand its base of coverage and influence. Cable TV is likely to become even stronger in the near future, when broadband technology has matured sufficiently to allow video-on-demand and other interactive programming. What will be the impact of the WTO agreement on advertising in China? It is generally believed that the categories most likely to experience significant impact - and therefore strengthening competition - are pharmaceutical products, automotive business, telecommunications and finance (including insurance). This is because the WTO deal will result in lower duties and the abolition of import quotas, allowing foreign investors to enter previously restricted business categories and sparking speculation that trade activities in China will easily double over the next six years. Besides foreign investment, local governments will almost certainly fund and assist state-owned enterprises to face foreign competition. For example, within the mobile phone sector, which saw 44 per cent growth last year to reach 40 million users, the government is ready to inject RMB 1.4 billion to support local mobile phone manufacturers in order to compete with the current three giant companies. Technological development will also accelerate the growth of advertising in China, where the number of Internet users doubles every six months. The current figure, according to China Network Information Centre (CNNIC), is more than eight million users, with Beijing boasting the largest user pool (21 per cent of total users). Guangdong and Shanghai take second and third place respectively, with 12 per cent and 11 per cent of total Internet users nationwide. As a result of the explosion of the Internet arena, San Francisco-based MyWeb Inc.com recently joined CNNIC along with other leading websites in China to develop a unified system to measure Web traffic. By the end of 1999, there were an estimated 15,000 websites in China, with ecommerce turnover reaching US$40 million last year, from just US$8 million in 1998. Information technology consultants IDC also predicted that turnover would even reach US$3.8 billion by 2003 - this would be the result of growth of 100 times over three years. The development of the Internet is affecting affiliated media businesses in various ways; for example, cable subscribers sooner or later will be able to access the Internet for general interest subjects, education and real-time financial information, via set-top boxes connected to their televisions. Shanghai's Radio, Film and Television Bureau has signed a 15-year contract with the joint-venture company T&L to provide Internet access to its more than three million subscribers. In summary, unlimited advertising opportunities are blossoming in China, but at the same time, the media scene is increasingly competitive and fragmented.

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